By Duane Duggan, Realtor, RE/MAX of Boulder
Published in Daily Camera’s At Home section on Friday, Nov 15, 2019
We just celebrated Veterans Day this past Monday and I want to start off by thanking all the Veterans who have served or are currently serving our country. Veterans often do not get thanked enough for their tremendous courage and sacrifice. At least one of the ways they do receive thanks is through the opportunity to buy a home using their VA eligibility. I spoke with Jessica Shanahan, a mortgage loan officer with local mortgage lender Premier Lending, for a summary of the home loan benefits available to Veterans.
Who is eligible to get a VA loan?
A Veteran must apply for a Certificate of Eligibility. Veterans can be eligible if they were not dishonorably discharged and meet any one of the following criteria:
- Served 90 days during war time
- Served 181 days in peace time
- Served 6 years in National Guard or Reserves
- If you are a spouse of a service member who has died in the line of duty.
- If you are the spouse of a service member who has died as a result of a service-related disability
How does the VA provide these loans?
The U.S. Department of Veterans Affairs (VA) does not make loans. It guarantees loans made by lenders. The VA determines your eligibility and if you are qualified, the VA will issue you a Certificate of Eligibility to be used in applying for a VA loan. VA-guaranteed loans are obtained by submitting an application to private lending institutions such as Premier Lending.
What is the primary benefit of a VA home loan?
No- or low- down payment is typically touted as the primary benefit of getting a VA loan. This pertains as long as the sales price of the home is not higher than the home’s appraised value. Low down payments are available through other programs, such as 3.5% down with FHA, but VA allows for no down payment.
Are VA qualifying standards more lenient?
The VA uses a measure called “residual income” to qualify a Veteran. They check to see if you have enough discretionary income for food, clothing, gas, etc. to live on after making your mortgage payment. There is a minimum residual income requirement.
How do I apply for a VA loan?
Pretty much the same as any other loan with a couple of additions. Those additions are the DD-214 (statement of service) for discharged service members or a statement of service letter signed by the commanding officer for active military members.
Is there mortgage insurance like insurance on low down payment conventional loans?
VA home loans do not require private mortgage insurance (PMI). However, the VA has a one-time funding fee of 2.15% of the loan amount for no down payment loans. The funding fee can be added into the loan. If the down payment is 5%, the funding fee is 1.75%. With 10% down it is reduced to 1.5%.
Besides the VA funding fee, what other closing costs are there?
Again, the VA funding fee can be financed into the loan. Lenders can charge a loan origination fee of 1% that covers some of the closing costs based on a list provided by the VA. The Veteran is allowed to pay for some closing costs, such as, appraisal (CRV), credit report, title insurance, recording fees, and surveys. In some market conditions, a Veteran might be able to ask the seller to pay for closing costs or concessions up to 4%.
Does the VA order an appraisal on the home?
The VA requires a mandatory home appraisal and from that issues what the VA calls the Certificate of Reasonable Value (CRV). This amount must be equal or greater than the sale price and it sets the ceiling on the size of the loan on the home. The CRV is good for six months after it is issued. The CRV does not guarantee the condition of the home.
Is there a loan limit?
The loan limit in Boulder County is $626,750.
Can a Veteran have more than one VA loan?
The dollar amount of a VA loan is based on entitlement, that is, the amount of money the VA will guarantee repayment to lenders in the event that a borrower defaults. It is possible to have two VA loans at once if all the entitlement is not used up on the first one and if the Veteran can qualify for both loans. A Veteran can also buy a second primary residence as long as there is enough entitlement and the Veteran can qualify.
How are interest rates determined on a VA loan?
The VA does not set interest rates but because the loans are backed by the federal government, interest rates are usually lower. The rate is market driven and can vary between lenders.
Are VA loans assumable when a Veteran goes to sell?
VA loans are qualifying assumable, meaning they can be passed to new owners. In other words, they are assumable if the new buyer qualifies for the payment. The assuming party does not need to be a Veteran. However, a Veteran seller will not have entitlement restored unless the loan is assumed by a qualified Veteran.
Can a Veteran buy a 4 unit with a VA loan?
Yes, a Veteran can buy a 2, 3, or a 4-unit property as long as the Veteran lives in one of the units. A Veteran can even combine their loan with other entitled Veterans to increase their purchasing power in they all occupy one of the units as their primary residence.
Can a Veteran buy an investment property using a VA loan?
The Veteran needs to owner occupy the property, so to buy a single-family home and rent it, the answer is no. However, as mentioned above, a Veteran can buy up to a 4-unit apartment building, live in 1-unit and rent the others.
Where do I get a VA Loan?
Remember, the VA itself does not make the loans. The loans go through private lenders approved by the VA, such as Premier Lending.
About Duane Duggan:
Duane Duggan has been a Realtor for RE/MAX of Boulder in Colorado since 1982 and has facilitated over 2,500 transactions over his career, the vast majority from repeat and referred clients. He has been awarded two of the highest honors bestowed by RE/MAX International: The Lifetime Achievement Award and the Circle of Legends Award. Living the life of a Realtor and being immersed in real estate led to the inception of his book, Realtor for Life.